The USD/JPY has rallied quite significantly during the trading session on Monday to show signs of strength yet again against the Japanese yen. The Japanese yen continues to suffer at the hands of the Bank of Japan, and its desire to keep interest rates lower. In other words, they are doing quantitative easing, while everybody else is doing quantitative tightening, and most certainly the Federal Reserve falls in that category.
It now looks as if we are trying to threaten the ¥139 level, and then by extension the ¥140 level. If the ¥140 level gets broken above, that could open the next level of buying pressure, and the market could become “buy-and-hold” again. The overall momentum of the market is still to the upside, and I would also point out that we have formed a bit of a bullish flag that has just gotten broken out. Because of this, you must take the measurement of that flag, recognizing that we are more likely than not going to go looking to the ¥141 level.
BoJ Remains Dovish, though not as Other Central Banks
- This does not necessarily mean that the market must get there overnight, nor does it mean that it will be easy.
- However, the last couple of candlesticks have been very bullish, and out of all the currency pairs that I am currently trading, this is the one that I think is the most clear-cut.
- This is because of the Bank of Japan, not necessarily anything beyond that, as the Federal Reserve is much tighter than the ECB, the BOE, and the SNB. All those currencies are currencies that I would short against the dollar, but those central banks are not as explicitly dovish as the Japanese.
The ¥136.50 level should offer significant support now, and if we can see above the area of the bullish flag remains valid. I do believe that we could go much higher, but that’s more of a longer-term strategy. While the market has gone sideways over the last couple of months, that’s a good thing as it gives the market time to work off some of the access noise from the previous move higher. There’s no reason that I would look to sell this market, at least not until the Bank of Japan changes its monetary policy.
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